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How do you decide when to be fully invested and when to keep some cash?

Original Question: How often are you fully invested? How big is your typical cash position at any given time? How do you decide when to go full and when to keep some cash?

Related Q&A: how-would-you-increase-exposure-coming-from-cash-and-managing-a-large-portfolio/

Fully invested means that I am 100% invested. The other 100% margin is only used to add to already established positions or to engage with opportunistic setups. You always want to keep some buying power for those sepcial occasions when your skilled chart eye sees a major opportunity.

Over the year there are typically 3-5 opportunities to make money. Those typically come right after a market pullback and spring to life in midst of uncertainty. My approach allows me to catch those waves early on and I typically end up being fully invested a couple weeks after the start. Normally I am almost fully invested around the time when the rally and thus a looming market leg up becomes rather obvious to the crowd. Then I sit tight and scale-out depending on the action of my individual holdings. This makes room for one or two fresh money buys just when other stocks reach limits and fresh setups emerge. Once sell signals hit I tend to be more cautious with fresh money buys and only focus on the very best and less obvious setups. When I made a couple fresh money buys I also tend to rather cut back those trades which allows me to sit tight in my longer term trades from earlier in the cycle. I also try to engage in early short sale opportunities off the peak by shorting at least one stock off the peak. Once we reach this phase my rules push me to a larger cash postion naturally and I make sure to accept that feedback and avoid arguing with the market by plunging into obvious lagging setups which are just there to lure in the slow animals right before a correction starts.

So in short: I go from net short or small (up to ~30%) long exposure to 100% within a couple weeks. Depending on momentum and setups this can also reach margin territory of up to 180% for brief periods or on a intraday basis sometimes. I never ever go above 200%! Once the sell signals emerge I quickly go below 100% (typically this happens automatically) and then go on and let the market push me in the right direction. All this above typically unfolds within weeks to months.

This last transitional phase is crucial as this is the time when most active traders lose money by quickly overcomitting to the long side again. This is very skill dependent and you need to develop a feel for the market and you need to have a handle on overtrading, fomo and all those destructive emotions.

I oftentimes sit between -30% to 30% (-30% means I am roughly 30% short, which means two regular positions) in predator mode for weeks or sometimes even months waiting for opportunity. Sometimes the short side provides more and sometimes less opportunity. I always try to test the waters on the short side when big stocks rally into resistance following destructive high volume breaks off the top. Depending on opportunity I sometimes can quickly plunge heavy into shorts to catch a swift decline. However compared to the long side, the trades on the short side unfold swiftly. Here I can reach -200% intraday just to scale-out back to 0% exposure within a day or two. Short selling is not needed nor recommended to make money in the stock market. Once you really are in sync and have many years of experience you can start to look into it, but not before! It can greatly mess with your fragile market timing sense without making up for it on the profit side.

Then when you least expect it fresh setups pop up out of nowhere and a fresh opportunity cycle springs to life.

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